Financial services, branded apparel, telecom buoy Aditya Birla Nuvo

Krishna Merchant
Live Mint
May 29, 2013

Aditya Birla Nuvo Ltd reported growth in profitability for the fourth consecutive quarter on the back of robust growth in the financial services business, which offset poor performance in the insurance and agricultural business.

Aditya Birla Nuvo’s consolidated revenue grew 17% from a year ago to Rs.6,996 crore, better than 10% growth in the December quarter. Net profit growth was slightly lower at 17% from the previous quarter on account of the disappointing performance of the insurance business.

Revenue for the insurance segment, which contributes around one fourth to the top line slipped by 5% from a year ago to Rs.1,637 crore, while EBIT (earnings before interest and tax) plunged at a faster clip of 31% to Rs.89 crore.

Sushil Agarwal, chief financial officer of Aditya Birla Nuvo, said, “Because of overall growth slowdown, sales growth of financial products was affected. Also, the surrender rate in policy has been very high, which has led to higher provisioning and that has weighed on the profitability.”

The insurance regulator has come out with new rules that require its approval for all product offerings, which will continue to affect sales in this segment.

Even fertilizers, which contribute 9% to the topline, saw 19% growth in revenue to Rs.615 crore, but a 35% plunge in EBIT because of higher prices for the farm input, weak demand and delays in subsidy payment.

Strong revenue growth of 46% from a year ago was seen in the garments and apparel business buoyed by the Pantaloons acquisition, with around marginal 4% growth in EBIT. Other financial services business performed well — sales grew 49% from a year ago to Rs.399 crore, with 62% growth in the EBIT led by strong growth in the non-banking financial company (NBFC) and asset-management businesses. The telecom business also showed decent growth of around 25% at the EBIT level.

The company’s debt has risen around 30% and interest costs have also jumped 68% from a year ago because of the Pantaloon acquisition. Aditya Birla Nuvo has outperformed the S&P BSE 200 index in the past year and is trading at 9.46X one year forward multiple.

It may continue to do well as long as subsidy payments kick in, the laggard carbon black business is separated and the insurance business takes wing.